Cambridge IAL Business cheat sheet

Enterprise is the organised effort of combining land, labour, capital and enterprise itself to produce goods or services; the entrepreneur supplies risk-bearing and decision-making, not just money.

Primary sector extracts raw materials, secondary sector transforms them into finished goods, tertiary sector provides services; the chain of production links all three, and a country's sector mix shifts with income growth.

Opportunity cost is the value of the next best alternative forgone when a resource is used for one purpose rather than another; it applies to firms and governments, not only consumers.

A sole trader has unlimited liability and no separate legal identity; a private limited company has a separate legal identity and limited liability, so shareholders lose only their invested capital.

Public sector organisations are owned or controlled by government and pursue objectives such as service provision and social welfare; private sector firms typically pursue profit, growth and market share.

Size can be measured by number of employees, turnover, capital employed or market capitalisation; different measures can rank the same firms differently, so state the measure used.

Business objectives include profit maximisation, sales revenue maximisation, growth, survival, market share and social or ethical goals; objectives change with the business life cycle and stakeholder pressure.

A business's external environment includes economic, legal, political, social, technological and environmental influences; changes in these shift demand, costs and the feasible strategies open to a firm.

Labour turnover rate = (number of leavers in a period ÷ average number of employees in that period) × 100; a high rate raises recruitment and training costs.

Labour productivity = output in a period ÷ number of employees (or labour hours) in that period; it is a physical measure, not a monetary one.

Absenteeism rate = (days lost through absence ÷ total possible working days) × 100; persistent absence signals low motivation or poor working conditions.

Recruitment and selection sequence: job analysis, job description, person specification, advertisement, shortlisting, interview or assessment, selection, induction; the person specification states the ideal candidate's attributes.

Internal recruitment is cheaper, quicker and motivating but limits the pool of new ideas; external recruitment widens the pool but costs more and carries higher risk of a poor fit.

On-the-job training is cheaper and job-specific but may transmit poor habits; off-the-job training gives broader skills but raises costs and removes staff from work.

Maslow's hierarchy (physiological, safety, social, esteem, self-actualisation) and Herzberg's two factors (hygiene factors prevent dissatisfaction; motivators create satisfaction) are the standard motivation frameworks to cite.

Financial motivators include piece rates, commission, bonuses, profit sharing and performance-related pay; non-financial motivators include job rotation, job enrichment, teamwork and autonomy.

Trade unions bargain collectively on pay and conditions; industrial action includes strike, work-to-rule and overtime ban, and the legal framework of industrial action varies by country.

Market size is the total sales value or volume of all suppliers in a market; market share = (firm's sales ÷ total market sales) × 100, and both value and volume versions must be distinguished.

Market segmentation divides a market by demographic, geographic, psychographic or behavioural criteria; a segment must be measurable, accessible, substantial and differentiable to be worth targeting.

Niche marketing targets a small, specialised segment with low competition and higher margins; mass marketing targets the whole market with economies of scale and lower unit costs.

The marketing mix is price, product, promotion and place; for services the extended mix adds people, process and physical evidence.

Price skimming sets a high launch price to recover development costs from early adopters; penetration pricing sets a low launch price to build share quickly, then raises it.

Product life cycle stages are development, introduction, growth, maturity and decline; extension strategies include new packaging, new markets, product updates and repositioning.

Boston Consulting Group matrix: stars (high growth, high share), cash cows (low growth, high share), question marks (high growth, low share), dogs (low growth, low share).

Elasticity of demand = percentage change in quantity demanded ÷ percentage change in price; elastic demand (|PED| > 1) means revenue moves opposite to price, inelastic demand means revenue moves with price.

Promotion methods include advertising, sales promotion, public relations, personal selling and direct marketing; the choice depends on budget, product type, target audience and stage in the life cycle.

Job production makes one bespoke item at a time; batch production makes a group of identical items; flow or mass production runs a continuous standardised process; each shifts the trade-off between unit cost and flexibility.

Labour productivity = total output ÷ total workers (or hours); capacity utilisation = (actual output ÷ maximum possible output) × 100, and low utilisation raises unit fixed costs.

Economies of scale lower unit cost as output rises; diseconomies arise from coordination, communication and motivation problems beyond an optimum size.

Break-even output = fixed costs ÷ contribution per unit, where contribution per unit = selling price − variable cost per unit; margin of safety = current output − break-even output.

Stock control: reorder level = maximum usage × maximum lead time; buffer stock covers unexpected demand or delay; JIT holds minimal stock but depends on reliable suppliers.

Quality control inspects output at the end of the process; quality assurance builds quality into every stage; total quality management makes quality the responsibility of all staff.

Lean production targets waste (muda) through just-in-time, kaizen, cell production and standardisation; the aim is to raise value added per unit of input.

Location decisions weigh proximity to market and raw materials, labour cost and availability, infrastructure, government incentives and competitors' positions.

Cash flow forecast records expected inflows and outflows month by month; net cash flow = inflows − outflows; closing balance = opening balance + net cash flow.

Profit is not cash: sales on credit raise profit before cash arrives, and capital expenditure reduces cash without an immediate expense; a profitable firm can still fail through illiquidity.

Break-even chart plots total cost and total revenue against output; the point of intersection is break-even, and the vertical gap between the revenue and cost lines is profit or loss.

Working capital = current assets − current liabilities; it finances day-to-day operations, and the current ratio = current assets ÷ current liabilities (around 2:1 is a common benchmark).

Acid test (liquid) ratio = (current assets − stock) ÷ current liabilities; it is a stricter liquidity test because stock may be slow to convert into cash.

Gross profit margin = (gross profit ÷ revenue) × 100; net profit margin = (net profit ÷ revenue) × 100; return on capital employed = (operating profit ÷ capital employed) × 100.

Sources of finance: internal (retained profit, sale of assets) versus external (bank loan, overdraft, share issue, debenture, leasing, trade credit); the choice depends on amount, time period, cost and risk.

Investment appraisal: payback period, average rate of return = (average annual profit ÷ initial investment) × 100, and discounted cash flow using net present value; NPV above zero favours acceptance.

Depreciation spreads the cost of a fixed asset over its useful life; it is a non-cash expense that reduces reported profit but does not reduce cash in the period.

Ansoff's matrix combines markets (existing or new) with products (existing or new) to give market penetration, product development, market development and diversification; diversification carries the highest risk.

Porter's generic strategies are cost leadership, differentiation and focus (cost focus or differentiation focus); being 'stuck in the middle' with no clear advantage tends to erode profitability.

Porter's five forces are rivalry among existing competitors, threat of new entrants, threat of substitutes, bargaining power of buyers and bargaining power of suppliers.

SWOT analyses internal strengths and weaknesses and external opportunities and threats; it is a position audit, not a strategy, so it must be followed by decisions.

PESTLE covers political, economic, social, technological, legal and environmental influences on the external environment; it identifies change drivers rather than firm capabilities.

The balanced scorecard assesses performance across financial, customer, internal process and learning-and-growth perspectives, not financial measures alone.

Strategic choice depends on the firm's resources and competences, stakeholder expectations, risk appetite and the competitive environment; implementation requires structure, culture and control systems to fit the chosen strategy.

Growth by merger or acquisition gives rapid scale and market share but risks culture clash, integration cost and diseconomies; organic growth is slower but preserves control and culture.

Contingency and network approaches hold that no single structure fits all firms: structure should follow strategy, technology, size and environment.

Stakeholders include owners, employees, customers, suppliers, lenders, local communities and government; their objectives can conflict, so a decision that satisfies one group may disadvantage another.

A company's legal structure determines liability, access to finance and continuity: sole traders and partnerships have unlimited liability, while incorporated bodies have limited liability and perpetual succession.

Business growth can be internal (organic) or external (merger, acquisition, joint venture); external growth is faster but brings integration and culture risks.

Multinationals operate in more than one country to access markets, lower costs or avoid trade barriers; they bring capital and jobs but may face criticism over labour standards and profit repatriation.

A tall organisational structure has many levels and a narrow span of control; a flat structure has few levels and a wide span, giving faster communication but heavier supervisory load.

Delayering removes management levels to cut cost and speed decisions, but can reduce promotion opportunities and damage morale.

Labour cost per unit = total labour cost ÷ total output; it falls if productivity rises faster than wages.

Staff appraisal reviews performance against targets and informs training, promotion and pay decisions; 360-degree appraisal collects feedback from peers and subordinates as well as managers.

Market research is primary (field, collected first-hand, costly, specific) or secondary (desk, already published, cheaper, possibly dated or not tailored).

Sampling methods include random, stratified, quota and cluster sampling; a biased sample produces unreliable conclusions regardless of sample size.

Product differentiation creates a perceived difference (design, quality, brand, service) that supports a higher price or greater loyalty.

A brand builds recognition, trust and pricing power; brand loyalty reduces price elasticity and stabilises revenue.

Productivity gains lower unit costs only if output rises faster than the inputs used; buying more machinery raises capacity but not necessarily productivity.

Critical path analysis identifies the longest sequence of dependent activities; the critical path determines the minimum project duration, and float is the spare time available on non-critical activities.

Total contribution = total revenue − total variable cost; it shows the amount available to cover fixed costs and then contribute to profit.

Supply chain management coordinates suppliers, production and distribution; holding safety stock protects against disruption but ties up working capital.

The statement of financial position lists non-current assets, current assets, current liabilities, non-current liabilities and equity; assets = liabilities + equity.

The income statement records revenue less cost of sales to give gross profit, then deducts expenses to give operating and net profit.

Gearing = (non-current liabilities ÷ capital employed) × 100; high gearing raises fixed interest obligations and financial risk.

Cash flow problems arise from overtrading, too much credit given to customers, excessive stock or heavy capital spending; remedies include tighter credit control, sale of assets and overdraft facilities.

Core competences are skills and capabilities that are valuable, rare, hard to imitate and non-substitutable; they underpin sustainable competitive advantage.

Corporate strategy concerns the whole organisation's scope and direction; functional strategy concerns how each function (marketing, operations, finance, HR) supports it.

Stakeholder mapping plots interest against influence to decide whom to consult, satisfy or merely inform.

Strategic implementation fails when resources, skills, leadership commitment or organisational culture do not match the chosen strategy.